In this article, we discuss 5 stocks that will benefit from the CHIPS Act. If you want to see more stocks in this selection, click 10 Stocks That Will Benefit from CHIPS Act.
5. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 76
Intel Corporation (NASDAQ:INTC), the American multinational technology corporation that produces semiconductor chips as well as specializing in computer hardware, automation, and artificial intelligence, is undoubtedly the largest beneficiary of the CHIPS Act. The Act would allow Intel Corporation (NASDAQ:INTC) to build factories and grant the company an investment tax credit to purchase tools and equipment for its new facilities. Intel Corporation (NASDAQ:INTC) said earlier this year that it would spend $20 billion on a factory in Ohio, which will likely be subsidized by the CHIPS Act and the FABS Act would lend it another $5 billion to $10 billion to equip the factory.
Northland analyst Gus Richard on August 1 observed that Intel Corporation (NASDAQ:INTC)’s valuation is now less than AMD, and he believes that Intel Corporation (NASDAQ:INTC)’s manufacturing scale is valuable to the U.S. Department of Defense and will “persevere in one form or another”. If Intel Corporation (NASDAQ:INTC) “continues to stumble,” he forecasts the breakup value to be $235 billion or $57 per share, and so he sees “little downside risk and a lot of upside,” even if the company does not execute, given this breakup value and de-risked estimates, robust valuation support, and a 4% dividend yield. He maintained an Outperform rating and a $55 price target on Intel Corporation (NASDAQ:INTC) shares.
Among the hedge funds tracked by Insider Monkey, 76 funds reported owning stakes in Intel Corporation (NASDAQ:INTC) at the end of Q1 2022, up from 72 funds in the prior quarter. Seth Klarman’s Baupost Group is the largest shareholder of the company, with 16.5 million shares worth $822.3 million.
Here is what O’Keefe Stevens Advisory has to say about Intel Corporation (NASDAQ:INTC) in its Q1 2022 investor letter:
“Intel announced they are removing stock-based compensation from non-GAAP earnings in 2022 to report results aligning with semiconductor peers. This may seem like a reasonable thing to do as comparability between peers becomes easier. On the other hand, what exactly is the point of adjusted earnings? It is not to conform to some industry norm or because the management teams need to make performance metrics. The point of adjusting earnings is to present results in a light that more closely reflects the actual underlying performance of the business. That is, backing out expenses that might be one-time in nature, such as legal or fire expenses. First off, share-based compensation is an actual expense. Decreasing my ownership stake in a company without receiving any compensation is not free. If a company paid its employees in all stock, would they add back the entire SBC? What a margin profile that would be. Second, should a company be worried about reporting results similar to other companies? Every company is unique. Management should not waste time determining what expenses should be excluded. Run the business, don’t worry about adjusting the numbers.”
4. Samsung Electronics Co., Ltd. (OTC:005930.KS)
Number of Hedge Fund Holders: N/A
Samsung Electronics Co., Ltd. (OTC:005930.KS) is a South Korean multinational technology firm that produces semiconductors and display panels. Samsung Semiconductor, Inc. is a Silicon Valley-based multi-billion dollar subsidiary of Samsung Electronics Co., Ltd. (OTC:005930.KS). Roughly $40 billion of the total $52 billion from the CHIPS Act is set for chip manufacturing incentives that will potentially benefit the likes of Samsung Electronics Co., Ltd. (OTC:005930.KS). On July 28, the company reported Q2 GAAP earnings per share of KRW1613. The company recorded a quarterly revenue of KRW77.2 trillion, up 21.3% year over year.
3. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 78
Micron Technology, Inc. (NASDAQ:MU) is an American producer of memory chips and storage products. The company operates through four segments – Compute and Networking Business Unit, Mobile Business Unit, Storage Business Unit, and Embedded Business Unit. The company plans to bring cutting-edge memory manufacturing to the United States with the CHIPS Act, which offers about $280 billion for domestic production, investment tax credit, and scientific research.
On July 27, Baird analyst Tristan Gerra said that the U.S. Senate passing the CHIPS Act could have a deflationary impact on semiconductor stocks in the intermediate-term as it will ultimately solve the supply challenges. The analyst said that the Act could result in Micron Technology, Inc. (NASDAQ:MU) reporting incremental, long-term capacity investments in the United States, and maintained a Neutral rating on the stock.
According to Insider Monkey’s data, 78 hedge funds were bullish on Micron Technology, Inc. (NASDAQ:MU) at the conclusion of the first quarter of 2022, compared to 83 funds in the last quarter. Matrix Capital Management is a prominent stakeholder of the company, with 4 million shares worth $311.56 million.
Here is what Hazelton Capital Partners has to say about Micron Technology, Inc. (NASDAQ:MU) in its Q3 2021 investor letter:
“It’s hard to explain how shares of Micron Technology, manufacturer of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology trades at just 8x 2022 estimated earnings. MU is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
2. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 81
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) manufactures and sells integrated circuits and related semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally. Although it is a Taiwanese company, the CHIPS Act will benefit TSMC as it indicated that it would begin US production in 2024. The company is now constructing a $12 billion fab in Arizona to help enhance domestic chip production.
On July 14, Susquehanna analyst Mehdi Hosseini assigned a Neutral rating to Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) and lowered the price target on the shares to $88 from $90. The analyst observed the company’s robust revenues in 2022 actually make 2023 more challenging by comparison. He said it is encouraging to hear Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) management acknowledging a looming inventory correction, but noted the 1H23 inventory correction will be harsher than anticipated.
According to Insider Monkey’s data, 81 hedge funds were bullish on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) at the end of Q1 2022, up from 72 funds in the last quarter. Ken Fisher’s Fisher Asset Management featured as the leading position holder in the company, with more than 26 million shares valued at $2.73 billion.
Here is what Wedgewood Partners has to say about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2022 investor letter:
“Taiwan Semiconductor detracted from performance despite a business performance that saw revenue accelerate to over +30% growth. The Company is one of the few fabs in the world that is capable of manufacturing leading-edge integrated circuits (IC). The Company’s leading-edge capacity is being absorbed by high-performance computing applications, particularly by Apple, which has become an integrated circuit powerhouse over the past decade. The Company’s aggressive investment in leading-edge equipment, tight development with fabless IC designers, and embrace of open development libraries should continue to foster a superior competitive position and attractive long-term growth.”
1. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 83
Advanced Micro Devices, Inc. (NASDAQ:AMD) is a California-based semiconductor company that manufactures microprocessors, chipsets, discrete and integrated graphics processing units, server and embedded processors, and semi-custom System-on-Chip (SoC) products. For fabless businesses like Advanced Micro Devices, Inc. (NASDAQ:AMD), the CHIPS Act will potentially create more sophisticated manufacturing options.
On August 3, Raymond James analyst Chris Caso reiterated a Strong Buy rating on Advanced Micro Devices, Inc. (NASDAQ:AMD) and lowered the price target on the shares to $130 from $160. Advanced Micro Devices, Inc. (NASDAQ:AMD) reported another “solid” quarter, with revenue exceeding the consensus modestly, primarily due to really robust Datacenter and Embedded growth year over year, the analyst told investors. While the third quarter guidance was “disappointing”, the company’s full-year outlook implies a more robust growth rate in December, the analyst added. He thinks regardless of a weakening macro backdrop, a strong new product pipeline and advanced customer engagements will drive long-term gains for Advanced Micro Devices, Inc. (NASDAQ:AMD).
According to Insider Monkey’s data, 83 hedge funds were bullish on Advanced Micro Devices, Inc. (NASDAQ:AMD) at the end of Q1 2022, up from 69 funds in the last quarter. Jim Simons’ Renaissance Technologies is a prominent stakeholder of the company, with 7.10 million shares worth over $777 million.
Here is what Carillon Tower Advisers has to say about Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q4 2021 investor letter:
“Advanced Micro Devices (AMD) supplies semiconductor chips for central processing units (CPUs) and graphic processing units (GPUs). The firm has been gaining share against its primary competitor in the datacenter server CPU space, as this rival has been unable to match the design and manufacturing capabilities of AMD and its partners. Investors are also looking forward to the closing of the previously announced merger with a semiconductor manufacturer that is another one of the portfolio’s holdings. The merger will increase AMD’s capabilities in the Field Programmable Gate Array (FPGA) chip space, and the combined company should possess the potential to win additional market share in the datacenter chip market.”
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